Reserve Bank of India Shortens Forex Swap Deadline to Stabilize Rupee

The Reserve Bank of India unexpectedly moved the deadline for its foreign currency non-resident bank (FCNR-B) swap window scheme forward to August 31, 2026, from the original date of September 30. The central bank stated the decision was "based on the encouraging response to the swap facility for FCNR(B) deposits and the resultant forex inflows," which totaled $52.3 billion of the $56.8 billion in total inflows recorded. These inflows helped push India's foreign-exchange reserves to a four-month high of $707 billion by August 7.

The policy shift surprised markets, as Governor Sanjay Malhotra had previously indicated there were no plans for a premature closure. Following the announcement, the Indian rupee fell toward a two-week low, opening between 95.48 and 95.64 per US dollar on August 17. Analysts suggest the early closure was driven by the rising costs of maintaining the scheme amid currency pressure.

To counter this volatility and the impact of crude oil price fluctuations and conflict in the Middle East, the central bank has increased its market interventions. The bank has sold dollars in every trading session since the previous Monday to anchor the currency, restricting the rupee to a narrow 30-paisa range. This aggressive approach has reduced 14-day realized volatility from over 4% to approximately 2%, drawing comparisons to the tenure of former governor Shaktikanta Das.